Case Study # 1

Industry:Hardware & Timber Retailing

Employees: Circa 70

Turnover: $16.0 million

Business Overview

This family owned business had grown from 1 to 3 sites over a six year period and had a number of family members working in the business. Whilst sales had grown substantially during the period of growth, net profits were low and the business was looking for external advice to improve the situation.

The Challenge

Using industry benchmark data and computer modeling techniques, it was possible to demonstrate how a focus on gross profits, customer acquisition and retention strategies and customer spending patterns could lead to achievement of industry norms as a first step in an improvement program.

The challenge laid down was to:
• increase gross profits by 10% over current levels
• increase net profit to industry norms
• develop an organisational structure and operational methods that support a more customer focussed organisation
• provide a systematised approach to doing business that everyone could understand and follow
• free up the owners so they could spend more time working ON the business rather than IN it.

How GNS GROUP Helped

Having a clear vision of what the business would look like in the future was an important starting point for the project. GNS facilitated the development of clear Vision and Mission statements for the business that would guide on going strategy and activities.

In formulating these statements, we undertook a series of client and team advisory boards. This was an important step in understanding client and team member perceptions of the current business, and where it should be heading into the future. It allowed us to pin point strengths and weaknesses of the business and identify new opportunities. The information gleaned from these sessions went into developing strategies to make the business more responsive to all stake holders.

Being a family business, family members took an active interest in all parts of the business but this regularly led to team member confusion and frustration. It was not uncommon for more than one of the family to instruct the team to do the same thing many different ways, or to override instructions given by another family member. There were no clear lines of management responsibility throughout the business. To overcome these issues, the organisation was restructured along functional rather than family lines. Clear areas of responsibility were assigned to each Manager (& family member). Whilst the family participated in directing the business at Board level, interference on a daily basis was significantly reduced.

The next step in the process was to benchmark the current performance of the business. Benchmarks were established for operational and financial performance and customer satisfaction levels. This data was used to measure key results areas for the business and set realistic budgets that management and team members could influence and act upon.

Strategies were put in place to increase the average sale, gross profit and customer base of the business. Team members were trained in key improvement concepts and the how to’s of putting strategies into practice.

The business had a very heavy focus on sales but not profits. With sales being the over riding factor for staff, sales were often made at the expense of profits. Profitability decreased as a result. It was important that management have a strong understanding of the financial principles of business, and to assist in this a 3 day Financial Management program was run.

By day 2, management were talking profits not sales. By the end of the 3 days, management understood the issues of margins and discounts, the cash flow cycle, debtors, inventory management, return on investment, product and customer profitability analysis, cost-volume-profit analysis, critical success factors and key performance indicators and issues such as financing the business for growth.

Budgets and monthly reporting systems were implemented to reinforce the training. And strategies were implemented to focus on areas for financial improvement. The issues of discount policies, capital expenditure, expenditure authority limits and general expense policies were formalised and systematised.

Monthly report templates were prepared for all key areas of the business including Operations, Marketing, Human Resources, Administration and IT. Managers were trained to understand and complete reporting requirements. These are presented for the monthly Board meeting instituted as a part of the development project.

A focus on improving operational performance led to the implementation of clear performance standards for team members and management alike.

To reward good performance, the bonus system was restructured to encourage the desired behaviour of managers. Key elements included reward for increased profitability (in place of sales), average transaction value and achievement of agreed personal goals.

Systemisation of business processes was undertaken and new procedures developed for daily use and training of all team members.

The Results

Key result areas used to measure performance and changes to date:

Sales +11.1%

Transaction Numbers +1.8%

Average Transaction Value +6.4%

Gross Profit +13.7%

Net Profit +22.3%

Gross Profit Per Employee +5.8%

Net Profit Per Employee +13.9%

Debtors Days -17.5%

Case Study # 2

Business Overview

In the year 2004, there was just one flexible gas piping system in the Australian market which was being imported and distributed (poorly) in a number of states of Australia. Key shareholders in our client, Gas Pex, were at that time commercial plumbers using the imported product. They could see the potential for the system as a replacement for traditional copper systems but were frustrated by (lack of) supply issues. GNS Group was engaged to assist in preparing a business proposal to be presented to the current importer to allow our client to distribute the system in Victoria and Tasmania on their behalf.

The Challenge

The original proposal was rejected by the current importer. The challenge was then to identify alternate suppliers of equivalent systems, visit these operations and assist in selecting a suitable supplier of product, assist in negotiating exclusive supply arrangements and set up the new company to take advantage of the opportunity that existed in the market place at the time.

GNS Group then worked with the client to identify an alternate flexible piping system that could be imported, assisted in negotiating supply arrangements, gain Australian standards approvals for the manufacturer and system and develop a business plan, operating structure, required staffing and systems to compete effectively in this new market.

How GNS GROUP Helped

GNS Group prepared the business proposal to be presented to the current importer and concurrently contacted the manufacturer of that system in Italy to determine the existence of any exclusive arrangements with the current importer. In addition we conducted research to identify other manufacturers of similar systems and used our network of contacts to investigate having components of the system manufactured in China to reduce product costs.

The current importer was scared off the proposal thinking they would lose a share of what at that time was a small pie – rather than looking at the bigger picture of what could be.

Research conducted by GNS Group using ABS Census data and industry knowledge showed the potential market for the product to be greater than $60million per annum at that time.

Investigations identified a number of potential suppliers of equivalent systems in China. The factories were contacted and visited by Gavin Shaw of GNS Group and our customer leading to an agreement to purchase a system from one of the Chinese suppliers.

GNS Group undertook a range of activities for its customer including:

Establishing a new company for the venture

Coordinating applications and approvals from SAI Global (Standards Australia) for the system and manufacturing facilities including attending the audit of the facility by SAI Global

Preparing a business plan and budgets

Assisting with recruitment of key staff

Developing and implementing key sales and operational systems

Negotiating an exclusive supply arrangement for the Australian market with the Chinese supplier

Helping to establish funding of the venture with banks and debtor finance organisations

Coordination of trade mark registration

Coordination of counter claims by competitors on a range of trade mark and patent issues – all successfully defended

Managing cash flow and growth of the business on an on-going basis

Ensuring that the business was run with an appropriate operating/personnel structure that ensured clear roles and responsibilities of owners and staff within the company and relevant remuneration structures.

Product was initially received from China in the first half of 2005 and first sales were made in June of 2005 out of a small warehouse operation established for the business in Melbourne.

In the next 2 years the company saw rapid growth and extended its operations interstate setting up distribution and sales networks in the key markets of Queensland, NSW and Western Australia.

Issues in continuing to adequately fund growth, get stock into the warehouse from China and fulfill customer requirements in a timely manner have led to the development of further fundamental operational systems that allow management and staff to have a clear understand how the business is performing at all times.

The company is now the number 1 supplier of this type of product in Australia and intends to continue to maintain this position.

As the company has grown, GNS Group have continued to assist in many areas of company operation including sales, advertising and marketing programs, investigation of further growth opportunities and regular performance monitoring of the business and cash flow against projections.

The Results

The growth of the company has been spectacular since the first sales in 2005. In the year 2007, the company was recognised by Business Review Weekly (BRW) as the fastest growing start up company in Australia for the 2005/06 financial year.

In 2008, the company again made the top 50 fastest growing start up list published by BRW.

The company sales have grown from a zero start to now be many millions of dollars.

The company consistently operates at profitable levels.

It has seen a significant increase in its ability to service its customers needs going from a low point of supplying circa 40% of orders in full and on time on a daily basis to now consistently achieving levels above 90%.

It is now able to fund all operational requirements and growth plans through free cash flow.

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